SIPP & Pension guidance - IM Private Clients

[B9]

Pretty sure you can't salary sacrifice beyond minimum wage.

ETA

HMRC said:

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

[brman]

B9 said:

ure you can't salary sacrifice beyond minimum wage.

ETA

HMRC said:

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

hmm. good point. So I currently work a nominal 20 hour week. So that limits me to £9266 min, assuming I did my sums right. I think that would still avoid tax and NI though so should still work?

[LeoSayer]

brman said:

hmm. good point. So I currently work a nominal 20 hour week. So that limits me to £9266 min, assuming I did my sums right. I think that would still avoid tax and NI though so should still work?

So if you get paid £9266, then £27,746 goes into your pension via salary sacrifice.

Then you contribute the £9,266 which gets grossed up to £11,582 in your pension.

So you end up with a total of £39,328 in your pension. That's not bad considering you only earned £37,000!

[brman]

LeoSayer said:

brman said:

hmm. good point. So I currently work a nominal 20 hour week. So that limits me to £9266 min, assuming I did my sums right. I think that would still avoid tax and NI though so should still work?

So if you get paid £9266, then £27,746 goes into your pension via salary sacrifice.

Then you contribute the £9,266 which gets grossed up to £11,582 in your pension.

So you end up with a total of £39,328 in your pension. That's not bad considering you only earned £37,000!

Is that right though?
I did the sums like this:
gross, pre sacrifice salary: 37000
9266 post sacrifice.
Leaves a sacrifice of 27734 going into the pension.
Max gross pension contribuition is 37000, so needs a personal contribution of 9266 gross to top it up. That is 7412 from me and 1853 from HMRC.
Leaving with 37000 in my pension and 1853 in my pocket.
Have I got that wrong?

ETA: Of course this still means I am getting 38853 from a 37000 salary so I am awaiting someone telling me I have got something wrong

Edited by brman on Friday 20th August 21:16

[LeoSayer]

brman said:

LeoSayer said:

brman said:

hmm. good point. So I currently work a nominal 20 hour week. So that limits me to £9266 min, assuming I did my sums right. I think that would still avoid tax and NI though so should still work?

So if you get paid £9266, then £27,746 goes into your pension via salary sacrifice.

Then you contribute the £9,266 which gets grossed up to £11,582 in your pension.

So you end up with a total of £39,328 in your pension. That's not bad considering you only earned £37,000!

Is that right though?
I did the sums like this:
gross, pre sacrifice salary: 37000
9266 post sacrifice.
Leaves a sacrifice of 27734 going into the pension.
Max gross pension contribuition is 37000, so needs a personal contribution of 9266 gross to top it up. That is 7412 from me and 1853 from HMRC.
Leaving with 37000 in my pension and 1853 in my pocket.
Have I got that wrong?

ETA: Of course this still means I am getting 38853 from a 37000 salary so I am awaiting someone telling me I have got something wrong

Yes, I think that's correct and something that never occurred to me before.

The difference of 1853 comes from getting relief on income that you would not have paid tax on, because it was inside your personal allowance.

[Intelligent Money]

LeoSayer said:

brman said:

LeoSayer said:

brman said:

hmm. good point. So I currently work a nominal 20 hour week. So that limits me to £9266 min, assuming I did my sums right. I think that would still avoid tax and NI though so should still work?

So if you get paid £9266, then £27,746 goes into your pension via salary sacrifice.

Then you contribute the £9,266 which gets grossed up to £11,582 in your pension.

So you end up with a total of £39,328 in your pension. That's not bad considering you only earned £37,000!

Is that right though?
I did the sums like this:
gross, pre sacrifice salary: 37000
9266 post sacrifice.
Leaves a sacrifice of 27734 going into the pension.
Max gross pension contribuition is 37000, so needs a personal contribution of 9266 gross to top it up. That is 7412 from me and 1853 from HMRC.
Leaving with 37000 in my pension and 1853 in my pocket.
Have I got that wrong?

ETA: Of course this still means I am getting 38853 from a 37000 salary so I am awaiting someone telling me I have got something wrong

Yes, I think that's correct and something that never occurred to me before.

The difference of 1853 comes from getting relief on income that you would not have paid tax on, because it was inside your personal allowance.

HI both,

brman's calculation is the correct one.

If your "salary" in this case is £9,266 then the maximum GROSS personal contribution that will gain tax relief is £9,266

So the net contribution is £7412 with £1,854 tax relief gross contribution £9,266

Cheers

Nik

[Tony Angelino]

Just on pensions, my partner doesn't earn enough to pay income tax and pays a bit into her IM SIPP. Will she still get her tax relief on contributions and if so, is there an 'optimum' amount to pay in to take maximum advantage please?

thanks

[bennno]

Tony Angelino said:

Just on pensions, my partner doesn't earn enough to pay income tax and pays a bit into her IM SIPP. Will she still get her tax relief on contributions and if so, is there an 'optimum' amount to pay in to take maximum advantage please?

thanks

Tax relief for what exactly? She’s not paying any income tax?

[Jasey_]

bennno said:

Tony Angelino said:

Just on pensions, my partner doesn't earn enough to pay income tax and pays a bit into her IM SIPP. Will she still get her tax relief on contributions and if so, is there an 'optimum' amount to pay in to take maximum advantage please?

thanks

Tax relief for what exactly? She’s not paying any income tax?

Pretty sure she will get tax relief on payments into a sipp.

Not sure what the optimum is though.

[randlemarcus]

Trivial question - I have a little crystallised fund coming from my mother's pension. Current provider doesn't accept them, and her IFA wants 3% to consider giving me advice to leave it with the current lot at (what look like) exorbitant charges. Do IM accept crystallised funds? No intention of drawing it while I am on my current salary.

[Carbon Sasquatch]

Tony Angelino said:

Just on pensions, my partner doesn't earn enough to pay income tax and pays a bit into her IM SIPP. Will she still get her tax relief on contributions and if so, is there an 'optimum' amount to pay in to take maximum advantage please?

thanks

2880 annually - it will get 720 from HMRC totalling 3600 per year contribution

You don't need to pay any income tax to get this - it really is 'free money' but it is going into a SIPP and locked up until retirement.

[Jasey_]

Carbon Sasquatch said:

Tony Angelino said:

Just on pensions, my partner doesn't earn enough to pay income tax and pays a bit into her IM SIPP. Will she still get her tax relief on contributions and if so, is there an 'optimum' amount to pay in to take maximum advantage please?

thanks

2880 annually - it will get 720 from HMRC totalling 3600 per year contribution

You don't need to pay any income tax to get this - it really is 'free money' but it is going into a SIPP and locked up until retirement.

Is the 2880 the max if you don't earn.

I thought you could put in up to the total amount you earn and you would get relief on up to 40k.

[Carbon Sasquatch]

Jasey_ said:

Is the 2880 the max if you don't earn.

I thought you could put in up to the total amount you earn and you would get relief on up to 40k.

My understanding is that is the 'optimum' amount. You get that whether you have income or not. After that you'd need to be actually paying tax to get any more back - therefore if you earn 10k and put it all in to a SIPP, you'd still only get 720 from HMRC.

Could be wrong though & happy to be corrected.

ETA - unless you had prior years of under contribution and had a relevant account open - but still 2880 per year.

Edited by Carbon Sasquatch on Thursday 26th August 07:48

Edited by Carbon Sasquatch on Thursday 26th August 07:49

[Jasey_]

Carbon Sasquatch said:

My understanding is that is the 'optimum' amount. You get that whether you have income or not. After that you'd need to be actually paying tax to get any more back - therefore if you earn 10k and put it all in to a SIPP, you'd still only get 720 from HMRC.

Could be wrong though & happy to be corrected.

ETA - unless you had prior years of under contribution and had a relevant account open - but still 2880 per year.

Think you're right

https://www.gov.uk/tax-on-your-private-pension/pen...

If you do not pay Income Tax
You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

you do not pay Income Tax, for example because you’re on a low income
your pension provider claims tax relief for you at a rate of 20% (relief at source)

[Intelligent Money]

randlemarcus said:

Trivial question - I have a little crystallised fund coming from my mother's pension. Current provider doesn't accept them, and her IFA wants 3% to consider giving me advice to leave it with the current lot at (what look like) exorbitant charges. Do IM accept crystallised funds? No intention of drawing it while I am on my current salary.

HI randlemarcus

Yes we will take crystallised funds.

Regards

Nik

[Jasey_]

Intelligent Money said:

randlemarcus said:

Trivial question - I have a little crystallised fund coming from my mother's pension. Current provider doesn't accept them, and her IFA wants 3% to consider giving me advice to leave it with the current lot at (what look like) exorbitant charges. Do IM accept crystallised funds? No intention of drawing it while I am on my current salary.

HI randlemarcus

Yes we will take crystallised funds.

Regards

Nik

Although this seems a little odd "I have a little crystallised fund coming from my mother's pension".

Is this money from your mothers pension going to your sipp or her sipp ?

or is this an inheritance thing - pretty sure they are very different things.

[randlemarcus]

Jasey_ said:

Intelligent Money said:

randlemarcus said:

Trivial question - I have a little crystallised fund coming from my mother's pension. Current provider doesn't accept them, and her IFA wants 3% to consider giving me advice to leave it with the current lot at (what look like) exorbitant charges. Do IM accept crystallised funds? No intention of drawing it while I am on my current salary.

HI randlemarcus

Yes we will take crystallised funds.

Regards

Nik

Although this seems a little odd "I have a little crystallised fund coming from my mother's pension".

Is this money from your mothers pension going to your sipp or her sipp ?

or is this an inheritance thing - pretty sure they are very different things.

Inheritance thing. Her pension was crystallised, and in drawndown when she passed. The trustees are distributing the residual stuff, I just need a wrapper that takes them.

[brman]

Intelligent Money said:

LeoSayer said:

brman said:

LeoSayer said:

brman said:

hmm. good point. So I currently work a nominal 20 hour week. So that limits me to £9266 min, assuming I did my sums right. I think that would still avoid tax and NI though so should still work?

So if you get paid £9266, then £27,746 goes into your pension via salary sacrifice.

Then you contribute the £9,266 which gets grossed up to £11,582 in your pension.

So you end up with a total of £39,328 in your pension. That's not bad considering you only earned £37,000!

Is that right though?
I did the sums like this:
gross, pre sacrifice salary: 37000
9266 post sacrifice.
Leaves a sacrifice of 27734 going into the pension.
Max gross pension contribuition is 37000, so needs a personal contribution of 9266 gross to top it up. That is 7412 from me and 1853 from HMRC.
Leaving with 37000 in my pension and 1853 in my pocket.
Have I got that wrong?

ETA: Of course this still means I am getting 38853 from a 37000 salary so I am awaiting someone telling me I have got something wrong

Yes, I think that's correct and something that never occurred to me before.

The difference of 1853 comes from getting relief on income that you would not have paid tax on, because it was inside your personal allowance.

HI both,

brman's calculation is the correct one.

If your "salary" in this case is £9,266 then the maximum GROSS personal contribution that will gain tax relief is £9,266

So the net contribution is £7412 with £1,854 tax relief gross contribution £9,266

Cheers

Nik

Thanks Nik for confirming that.

Jasey_ said:

Carbon Sasquatch said:

My understanding is that is the 'optimum' amount. You get that whether you have income or not. After that you'd need to be actually paying tax to get any more back - therefore if you earn 10k and put it all in to a SIPP, you'd still only get 720 from HMRC.

Could be wrong though & happy to be corrected.

ETA - unless you had prior years of under contribution and had a relevant account open - but still 2880 per year.

Think you're right

https://www.gov.uk/tax-on-your-private-pension/pen...

If you do not pay Income Tax
You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

you do not pay Income Tax, for example because you’re on a low income
your pension provider claims tax relief for you at a rate of 20% (relief at source)

Hang on, have I missed something.
In my calculation above I end up with a gross salary of £9,266. As my tax code is 1250L (or slightly more now?) I will not pay tax on that. Does this mean I am then restricted to the £2880 (net, 3600 gross) personal contribution (to get relief)?
If that is the case then should I be setting my salary at just above my tax code so I am paying nominal tax but getting full relief? I guess I might need to do the sums on NIC etc to check it still stacks up.

[Carbon Sasquatch]

Read the link in the quote - it appears to be different if you're a tax payer vs a non-tax payer (before sacrifice)

[Jasey_]

randlemarcus said:

Jasey_ said:

Intelligent Money said:

randlemarcus said:

Trivial question - I have a little crystallised fund coming from my mother's pension. Current provider doesn't accept them, and her IFA wants 3% to consider giving me advice to leave it with the current lot at (what look like) exorbitant charges. Do IM accept crystallised funds? No intention of drawing it while I am on my current salary.

HI randlemarcus

Yes we will take crystallised funds.

Regards

Nik

Although this seems a little odd "I have a little crystallised fund coming from my mother's pension".

Is this money from your mothers pension going to your sipp or her sipp ?

or is this an inheritance thing - pretty sure they are very different things.

Inheritance thing. Her pension was crystallised, and in drawndown when she passed. The trustees are distributing the residual stuff, I just need a wrapper that takes them.

Pretty sure that will just come to you as "cash".

You can then do what you want with it.

Scrub that - as with most things this is as complicated as a complicated thing - not sure if you can transfer funds like this to your own SIPP or not - but from reading this is looks like you could leave it invested where it is or take it as a lump sum.

https://www.youinvest.co.uk/pensions-and-retiremen...

Sure these options are the same with most SIPPS.

Edited by Jasey_ on Thursday 26th August 17:21